Kenya Power bets on higher tariffs to shore up earnings

By James Anyanzwa

NAIROBI, KENYA: Kenya Power is banking on increased electricity prices to turn around the company’s wobbling cash-flow position.

The latest move comes after the power distributor and transmitting company recorded a decline in profitability.

This was attributed high finance costs and a decline in net foreign exchange gains.

The firm’s profit before tax for the year ending June 30, plunged   24 per cent to Sh6.42 billion, from Sh8.5 billion last year. Finance costs increased by 105 per cent to Sh2.49 billion from Sh1.21 billion while unrealised foreign gains from revaluation of loans and interest fell   by Sh1.41 billion and Sh378 million respectively.

During the period under review, electricity sales grew 3.2 per cent to 6.18 billion units from 5.99 billion units while sales revenues increased six per cent to Sh47.91 billion, up from Sh45 billion.

Fuel cost recoveries declined 24 per cent to Sh31.77 billion from Sh41.89 billion,  due to reduced generation from thermal plant and increased generation from hydro plants.

Acting, Managing Director and Chief Executive Dr Ben Chumo said higher financing costs were triggered by additional medium and short-term loans taken to supplement internally generated funds to finance network expansion and system reinforcement.

“Subsequently, this put a huge financial pressure on the company and the programme was halted in January 2013 due to unsustainable liquidity challenges,” he said.

Dr Chumo noted that an upward revision in electricity tariffs would help improve the company’s financial viability. “The company made its proposal for revised electricity tariffs to the Energy Regulatory Commission (ERC) and there are indications that the matter will be concluded soon,” he said.

“The Board is optimistic that this will result in an appropriate tariff structure that will take into consideration both the need for affordable electricity to customers as well as the company’s financial viability.”

The power utility firm had earlier in the year made a proposal to ERC to up  electricity tariffs to enable the company generate adequate funds for its expansion activities.

Under the proposal Kenya power was seeking to increase the fixed charge and consumption tariff by 21 per cent starting March 2013.

The firm planned to further increase the tariffs by nine (9) per cent in July 2013, four (4) per cent in July 2014 and 11 per cent in July 2015. But ERC delayed the tariff review citing need for deeper consideration of stakeholder views.